CNH Tracker-Stock connect scheme reduces dim sum issuers'costs

HONG KONG Nov 20 (Reuters) - The launch of the
Shanghai-Hong Kong stock connect scheme this week has reduced
borrowing costs for foreign companies looking to issue
yuan-denominated debt in the offshore markets and may lead to
more issuance in an already record year.

A link that lets Hong Kong and Shanghai investors buy and
sell shares on each other's bourses debuted on Monday, boosting
hopes of more capital flows into equities as investors rush to
find bargains in the bourses.

But while stock punters have met with early disappointment
as both Hong Kong and Shanghai stocks lost some of their
pre-launch gains, foreign issuers of offshore yuan debt are
licking their lips at the prospects of cheaper borrowing costs.

Expectations of a shortage of the Chinese currency in Hong
Kong had risen in recent months making it increasingly expensive
for yuan borrowers as foreign investors can only participate in
the stock connect scheme using the yuan.

That rise in the cost of offshore yuan has, owing to the
widening interest rate gap with the U.S. dollar, driven up the
cost of swapping dollars for yuan in the currency forwards.

Those looking to borrow yuan by swapping their dollars now
have to pay a record 3 percent for one-year FX swaps
, three times the rate in February.

This jump in swaps however benefits those that are on the
opposite side of the FX swap trade, which is foreigners who are
borrowing in the offshore yuan market and swapping that yuan
into dollars.

This week has seen issuance in the dim sum market by new
South Wales Treasury Corporation and Caterpillar.
Continued...